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Truck freight dropping, but double-dip recession unlikely

A steady five-month drop in freight traffic as measured by the Ceridian-UCLA Pulse of Commerce Index (PCI) indicates that U.S. economic activity is stalling out as 2010 comes to a close. However, the economist tracking the PCI stressed that this does not indicate a feared “double dip” recession is on the horizon

A steady five-month drop in freight traffic as measured by the Ceridian-UCLA Pulse of Commerce Index (PCI) indicates that U.S. economic activity is stalling out as 2010 comes to a close. However, the economist tracking the PCI stressed that this does not indicate a feared “double dip” recession is on the horizon.

“We have had a recovery 'time out,'” said Ed Leamer, chief PCI economist and director of the UCLA Anderson Forecast. “Since May's peak, trucking has receded 8.3%. Fortunately, the full stew of economic information does not appear to foretell a double dip in the coming. Rather, the economic malaise that set in this summer is still very much with us.”

Craig Manson, senior vp and index expert for Ceridian, told Fleet Owner that it’s critical not to paint “too bleak a picture” based on the PCI data to this point. “Yes, truck freight shipments have steadily declined since they peaked in May, but they are still up over where volumes were at the same time last year,” he noted.

The PCI, which measures the flow of goods to U.S. factories, retailers, and consumers in real time by tracking over-the-road diesel fuel purchases nationwide, fell 0.6% in October. That drop followed a decline of 0.5% in September and a 1% slip in August.

The three-consecutive- month decline is the first since January ‘09, when the U.S. economy was still deep in recession, UCLA’s Leamer said. He noted that the negative month-over-month trajectory for October – typically a peak month for America's trucking industry – potentially indicates a disappointing holiday retail season.

"The October PCI sounds an alarm about growth in the fourth quarter, and our latest PCI data indicates retailer wariness about future sales prospects," he added.

On a year-over-year basis, October’s PCI is 4.1% higher than October ‘09, which typically signals better sales prospects, said Leamer. However, year-over-year increases in the PCI have continued to fall since May's 9% percent growth peak, dropping to 8.6% in June, 8% in July, 6% in August, 5.8% in September, and now 4.1% in October.

The quarter-over-quarter findings show a similar downward trend with the first quarter 9.7% above the fourth quarter of 2009, the second quarter this year 6.2% above the first quarter of 2010, and the third quarter 2.1% above the second.

With the three-to-one relationship between the PCI and gross domestic product (GDP) growth in recessions and recoveries, the 4.1% PCI growth figure in October translates into 1.3% year-over-year GDP growth.

By contrast, though, the U.S. Commerce Department’s Bureau of Economic Analysis first estimate for growth the third quarter this year, released at the end of October, indicated that real GDP grew at an annual rate of 2%, comparable to private-sector expectations of a 2.1% increase, with growth so far averaging a moderate 2.8% annual rate over the course of 2010.

The declines in the PCI in the last three months suggest further slowing of growth of industrial production, anticipating another decrease of 0.16 percent adjusted downward from last month's prediction of 0.11 percent.

“The PCI's performance indicates that retailers lack confidence in the coming sales season,” noted Ceridian’s Manson. “And this trend does not bode well for the first quarter of 2011.”